Startup Guide

Help & advice for Contractors

Fusion Knowledge
Startup Contractor Guide

How to start as a Contractor

The decision of becoming a contractor might be challenging and a difficult decision to make, especially if you are leaving a steady paying full-time job to start as a contractor. Having the confidence to quit your job, or if you are in a situation of being made redundant and are forced into contracting then this guide will help you make the correct decision by looking at some of the important aspects of starting up as a contractor.

Advantages & Disadvantages of Contracting

There are various reasons people usually choose to work as contractors rather than employees, below are both the advantages and disadvantages of starting as a contractor.

What are the Advantages of contracting?

  • A price promise
  • Higher Pay, earning more money
  • Paying lower taxes (our specialist contractor accountants can show you how to achieve this)
  • Better Professional work satisfaction
  • Greater variety of work, work on projects that interest you
  • More choice over when and where to work
  • Not being tied down to working with people you don’t like
  • Being your own boss

What are the Disadvantages of contracting?

  • Added responsibilities by having to manage your own business
  • Reduced job security, most contracting jobs are usually temporary
  • Can mean having to move to a new house or travel a lot for work
  • Staying in contract, the need to secure ongoing contracts to earn enough
  • More stress on having to work on deadlines
  • No employee holiday benefits, you cannot take time off during your contract
  • IR35, getting caught by the IR35 Legislation

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Contractor Business Model

Starting as a contractor, you are offered a choice of what type of business you will work as. The importance of this choice is that it can affect how much tax you pay – Our specialist contractor accountants can advise you on the best option. Below all the options are explained.

Limited Company

A limited company allows contractors to be separate legal entities from their company, meaning they have a “limited” liability and are notpersonally liable for any financial difficulties faced by the company. If your company is bankrupt, your personal bank accounts, car, house etc. cannot be claimed, as you have a “limited” liability.
As a sole trader you get taxed on your income, you may end up paying 30% tax on gross income. Via a limited company you pay Corporation Tax and can get paid with a mix of a low wage and dividends, which means you will pay less tax and less NICs.
Through a limited company you can also claim business expenses which can include equipment, mileage allowance, business trips, stationary etc. Business expenses are deducted from the company’s profit which is not taxed, so you will end up paying less tax at the end of each tax year.

Sole Trader

This is the simplest option for contractors since any profits are automatically yours since there is no separation between you and the business. You will need to file a Self-Assessment Tax Return each year and make National Insurance Contributions. (An accountant can help you with Self-Assessments). However, clients are less likely to work with contractors who are sole traders.


This is similar to a sole trader, but with two or more people work together as single company.

Umbrella Company

Contractors can choose to be employees of an umbrella company, which deals with things like sending invoices and chasing payments. It makes things a lot simpler for contractors at the expense of having to pay higher taxes due to being an employee

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